5 Ways to reduce your mortgage payments ?, for a NEW property/new mortgage

mrginge

droiderm wrote: »

I don't understand the concept of people saying don't buy a house unless you have a "big enough deposit" which I can only assume you can have better rates, and possibly not fall into negative equity.

If it was an investment, I could understand that.

But, if it's somewhere for you live then I don't see the issue of buying a home with as little as deposit as you can get away with.

FTBs will want a home one day , why wait if you don't have to?

You could always take it to the extreme from a frugal perspective - save up until you don't need a mortgage.

It is an investment. Might not be to the buyer but it certainly is to the lender. There's nothing wrong with doing what you state as long as you accept that it costs you a lot more in the longer term and also puts you at more risk of having fewer choices if your circumstances change.
I suppose its like getting a 100% mortgage in 2007 over 30 years but then moaning about negative equity today.

droiderm

Thrugelmir wrote: »

Life is full of ups and downs. Relationships, health, job security, burden of dependents etc

The sounder the foundations the more likely that difficulties can be overcome.

But surely the same can be said for the period you are saving the large deposit ?
Why not take it to the extreme and save the lot to reduce the risk more?

droiderm

mrginge wrote: »

It is an investment. Might not be to the buyer but it certainly is to the lender. There's nothing wrong with doing what you state as long as you accept that it costs you a lot more in the longer term and also puts you at more risk of having fewer choices if your circumstances change.
I suppose its like getting a 100% mortgage in 2007 over 30 years but then moaning about negative equity today.

I am not looking at it from a lenders perspective .
I agree with the choices thing but for me , overpayment will help.
For me smaller deposit gives you a home quicker. That's it.
I don't see much point in waiting longer than needed.

kloana

As someone else has pointed out, take out the longest mortgage possible.

The longest term available to you without any unneccessary difficulty would be the number of years you currently have left until your anticipated retirement age (currently usually assumed to be 65). Extension beyond 65/retirement will depend upon what plans - if any - you have for retirement, i.e. pension provisions and so on.

When your first mortgage deal 'expires', you can reel in the number of years left to pay, by choosing to take out a shorter mortgage (higher monthly payments, but less overall interest paid), if you're able to do so. If your financial position is still tight, you can just carry on plugging away at a longer loan for the 20/25/30/35 years you have left (lower monthly payments, but more overall interest).

It's a relatively simple way to get low monthly payments, but may cost you dear in the long run, because of the interest.

But much better than clinging onto hopes of an IO mortgage that you won't get.

Putting down the lowest deposit possible, unless you simply can't afford more, is a bad idea, both for monthly payments (naturally higher), and for homebuying in general (you'd only own the tiniest fraction of your home, for many years to come - should house prices drop by even a fraction in the first few years, you'd effectively owe more money than your home is worth - AKA negative equity).

Thrugelmir

droiderm wrote: »

But surely the same can be said for the period you are saving the large deposit ?
Why not take it to the extreme and save the lot to reduce the risk more?

There's a balance to be made. As the higher the risk the higher the initial cost as well. So a larger deposit results in a lower interest rate.

Houses are homes not investments.

JimmyTheWig

droiderm wrote: »

But, if it's somewhere for you live then I don't see the issue of buying a home with as little as deposit as you can get away with.

If that's your only option of having somewhere to live then of course that would be the best plan.
If that works out the cheapest way for you to live then, again, of course it's a good plan.

But where people have cheaper alternatives (e.g. rent and be £5k better off or stay with parents and be £10k better off) then I don't see the advantage of buying.
Where people are looking to get a mortgage that they can't really afford, again this doesn't sound like a good plan to me.

droiderm

JimmyTheWig wrote: »

If that works out the cheapest way for you to live then, again, of course it's a good plan.
But where people have cheaper alternatives (e.g. rent and be £5k better off or stay with parents and be £10k better off) then I don't see the advantage of buying.

Surely it's not only about what is the "cheapest" i.e. rent versus mortgage payments.

I do think people take this money saving too far.
If your aware of the options, and make the best decision of the options of buying a home then I don't see the issue.

You could argue that renting will always be "cheaper" in a stagnant housing market, but surely that doesn't mean people would never buy a home.

Take my example, although I am not treating it as an investment.

Rent

Rent 700 per month
Save 300 per month for 5 years.

Cost of renting 42000
Savings over 5 years 18000.
Extra savings by keeping the initial bying a house cost 13000.
Total savings 31,000

I spent 73,000 and have 31K in savings.

Buy

5% deposit and other costs 13,000
Mortgage cost in this instance £633, but pay 700 as above.

Overpay by an additional 300 in this instance, instead of saving it.

Mortgage balance after 5 years (assuming 5.79%) and paying £1000 per month, 82652

Initial purchase cost 120000 (including deposit) , equity after 5 years 82,652.
Potential Equity 37348 for again 73,000 spend.

I could probaby take 12k of that equity (10% of house price loss) which would leave me 25348 equity.

I have not included interest in the rental savings, nor considered house maintenance costs of a new build.

But assuming I have done that correctly, there is not a whole lot in it. Obvisouly assumptions have been made.

Even if I could access 4.5% interest rate (maybe a larger deposit) the mortgage balance would be marginally lower. Maybe 1-2K.

I just can't get my head around the big advantage of having a larger deposit.

Even though I am not treating it as an investment, I would be interested in peoples comments.

JimmyTheWig wrote: »

Where people are looking to get a mortgage that they can't really afford, again this doesn't sound like a good plan to me.

That would just be stupid!.

grey_gym_sock

droiderm wrote: »

I just can't get my head around the big advantage of having a larger deposit.

with the big mortgage overpayments in your example, i don't think there's a big advantage in a larger deposit. after 5 years, the LTV will no longer be so high, so it's only costing during the early part of the mortgage. with no overpayments, there would be more difference, because you could be stuck on a high mortgage rate for much longer, or in negative equity if prices fell, so perhaps unable to move, etc.

JimmyTheWig

droiderm wrote: »

Surely it's not only about what is the "cheapest" i.e. rent versus mortgage payments.

I do think people take this money saving too far.
If your aware of the options, and make the best decision of the options of buying a home then I don't see the issue.
...
I am not treating it as an investment

I think in many, many ways you are right.
On the figures that you have given there is not much difference between renting and buying in today's market.
I believe that in some areas the difference between rents and prices means that renting works out better and in other areas (the areas that I have looked at, certainly) the difference between rents and prices means that buying works out better.
But on the figures you've posted there is little difference so ir becomes less of a moneysaving / investment question and more of a lifestyle choice.
E.g. do you want a place where you can walk away with no ties after a year? (renting would be better)
Do you want a place where there isn't a landlord who can chuck you out on a whim? (buying would be better)
Are you looking forward to decorating and making your house a long-term home? (buying would be better)
Would you rather there was someone else responsible for maintenance, plumbing, electrics, etc? (renting would be better)

Where there is little in it money-wise then the above choices become more relevant.
If you find yuorself in a situation where one works out significantly better value than the other (lets take a rediculously extreme example - where you would need to borrow the deposit to buy someone from Wonga!) then this has to come in to play. Even though renting might "not be for you" it might be worthwhile for a year if that makes the numbers work in the long term.

[On getting a mortgage that you can't afford]That would just be stupid!.

Another extreme example where renting would be a better idea than buying.
Unfortunately, however, this seems to be what the OP is looking for.

droiderm

grey_gym_sock wrote: »

with the big mortgage overpayments in your example, i don't think there's a big advantage in a larger deposit. after 5 years, the LTV will no longer be so high, so it's only costing during the early part of the mortgage. with no overpayments, there would be more difference, because you could be stuck on a high mortgage rate for much longer, or in negative equity if prices fell, so perhaps unable to move, etc.

But if it's being suggested that people save a 25%+ deposit (or whatever), then surely they would be in a position to overpay a similar amount?